Canadian Consumer Price Inflation – October 17 ,2014

Canadian Consumer Price Inflation – October 17 ,2014

Canadian consumer prices rose 2 per cent in the 12 months to September, a modest 0.1 point decline from August. The Bank of Canada’s core measure of inflation, which excludes volatile prices such as energy and food products, registered 2.1 per cent. Consumer prices in BC rose 1.2 per cent.

CPI inflation continues to trend near the Bank of Canada’s 2 per cent target, but should moderate substantially in coming months due to collapsing energy prices. Although core inflation is slightly above the Bank of Canada’s target, we do not expect the Bank to alter its course unless inflation moves outside of its 1-3 per per cent control range. 

For more information, please contact:  Gino Pezzani.

Housing Market Update (October 2014)

Click on image to watch BCREA Chief Economist Cameron Muir discuss the September 2014 statistics:

For more information, please contact Gino Pezzani.

 

Meaningful, Affordable Change to the Property Transfer Tax

Minister of Finance Mike de Jong has made it clear that there’s no room in the provincial budget for new spending. In fact, that’s been the message of his office for several years, and BCREA respects this fiscally-prudent approach.

But fiscal prudence isn’t just about saying no; sometimes, a strategic yes is in order.

BCREA consistently and regularly recommends that the provincial government minimize the negative impact of the Property Transfer Tax (PTT). The PTT places an unfair burden on homebuyers, and is by far the highest provincial property transfer tax in the country. While BCREA understands the government’s objective to balance the budget, adjusting the PTT could stimulate additional activity in the real estate market, encourage spending related to property transactions and would certainly demonstrate an understanding of the important role of real estate and property owners in the provincial economy.

Since it was introduced in 1987 as a luxury tax, the PTT has always been applied in the following way: 1% on the first $200,000 of the fair market value of a property, and 2% on the remainder. This static structure is entirely at odds with BC’s dynamic real estate market.

As an initial measure to improve the fairness of the PTT today and in the future, BCREA strongly recommends the provincial government index the 1% threshold of $200,000, and then make adjustments annually.

The impact on provincial revenue would be minor, and the goodwill from homebuyers and real estate sector stakeholders significant. This is a strategic yes.

For more information, please contact:  Gino Pezzani.

Canadian Employment – October 10, 2014

Canadian Employment – October 10, 2014

The Canadian labour market broke out of its summer slumber, adding 74,000 jobs in September,  nearly all of which were in full-time employment. Total hours worked, which is closely associated with economic growth, rose 0.3 per cent and the national unemployment rate fell 0.2 points to a 6 year low of 6.8 per cent.

The BC economy saw employment grow by 9,600 jobs in September. Moreover, recent losses in full-time work were overturned as full-time employment grew by 20,600 while part-time employment declined by 11,000. The provincial unemployment rate remained unchanged at 6.1 per cent. Year-to-date, employment in BC is up just 0.6 per cent.

For more information, please contact:  Gino Pezzani.

BCREA Mortgage Rate Outlook

Lower, but for how much longer?

In stark contrast to the consensus of economists’expectations at the end of last year, bond yields have spent most of 2014 trending downward. Indeed, perhaps weary of previous false starts, bond markets have even shrugged off recent signs of a strengthening economy, an acceleration of inflation and the unwinding of stimulus from the US Federal Reserve. Lenders have responded in kind, offering homebuyers record low mortgage rates.

mortgageRateGiven well anchored inflation expectations and near consensus that short-term rates will be higher next year, the continued downtrend in bond yields this year is difficult to explain. One factor could be that investors are acclimating to the idea that the neutral rate, or the Bank of Canada’s preferred destination for interest rates once it tightens, is likely much lower than in the past and that realization is being priced into expectations and therefore long-term interest rates.

Additionally, the performance of Canada’s financial and banking system post-financial crisis has won it a reputation among foreign investors as a safe harbour. Foreign holdings of Canadian government bonds and treasury bills have jumped from 15 per cent to over a quarter of outstanding debt since the global financial crisis.

As uncertainty mounts in other areas of the world due to weak economic growth or unresolved conflicts, assets have crowded into both US and Canadian debt securities, forcing yields lower. Given these factors, rates could remain below historical average levels even as the Bank of Canada begins tightening.

While we don’t expect the Bank to act on interest rates until late in 2015, bond yields could rise modestly before then in anticipation of higher rates, particularly if economic growth is stronger than expected. If so, we expect to see a slight increase in five-year and one-year fixed mortgage rates by the end of 2014.

For more information, please contact Gino Pezzani.